Tough Year Ahead for Construction Industry
Little cash has materialized as Alberta gets ‘lots of promises’ but little action
All levels of governments have ramped up capital spending announcements in the past two years to get people back to work. However, not enough of the money has turned into real work, at least not yet. The result is that difficult times continue.
In business for 35 years, Keystone Excavating Ltd. has worked on major infrastructure initiatives across the province, from Calgary’s south hospital to the Anthony Henday Drive project in Edmonton.
But in the midst of a construction slump, the privately owned company recently made a difficult decision to close at the end of March.
Chief executive Sandip Lalli says Keystone Excavating saw a 22-per-cent drop in revenues in 2016 and the outlook for this year wasn’t much better.
“2016 was the worst year we’ve had in 35 years,” she said in an interview.
“We concluded that the market is not going to turn around here in 2017, probably (not) until the summer to fall of ’18.”
Like many Alberta companies, Keystone Excavating reduced its expenditures in response to the recession. Its staff count dropped from a high of 150 to fewer than 50 employees recently.
Yet, with less residential, commercial and infrastructure work on the horizon, 2017 was shaping up as another down year.
“This is our decision to close,” Lalli said.
“We don’t see a recovery, and really, for us, it was anchored in the fact there are no good infrastructure projects (ahead).
“All those infrastructure projects are discussed, but … none of that has come into play to put people to work.”
Questions about government infrastructure spending come at a difficult time for much of Alberta’s construction sector, given the impact of the two-year recession.
Provincial data shows building permits dropped by 37 per cent in November to $1.1 billion.
A new report by BuildForce Canada, a national construction industry group, forecasts that with the completion of several larger projects this year, the sector in Alberta will “likely see a second wave of job losses before recovery.”
It forecasts that between 2017 and 2026, total construction employment will fall by an additional 11,000 jobs.
None of this should come as a shock.
What is surprising are comments by those in Alberta’s construction industry about the lack of significant progress being made on much-touted government projects, such as hospitals and highways.
Federal, provincial and municipal levels of government have all ramped up capital spending in the past two years to take advantage of the downturn.
Economically, it makes sense to build during a recession, when construction costs are lower and people need jobs.
However, not enough of the money has flowed and translated into tangible work, at least not yet.
Paul Verhesen, past-chairman of the Alberta Construction Association and the president of Clark Builders, said feelings of “frustration” are common across the sector.
The Trudeau and Notley governments have promised billions of dollars in spending for Alberta, yet not enough has led to contracts being finalized and dirt actually moving.
On Thursday, the parliamentary budget office released a report showing the federal government’s New Infrastructure Plan announced in last year’s budget isn’t yet hitting its targets.
Of the $13.6 billion of infrastructure money that’s to be
All those infrastructure projects are discussed, but ... none of that has come into play to put people to work.
spent in the 2016-18 fiscal years, federal departments have only identified $4.6 billion worth of projects.
In Alberta, Prime Minister Justin Trudeau visited the legislature a year ago and promised to fast-track infrastructure spending in this province.
While progress has been made on allocating cash under the Liberals’ new infrastructure initiatives, more than $500 million for the province still remains unspent from the former Harper government’s New Building Canada Fund.
A year ago, the fund had almost $700 million in unspent money for Alberta. Today, it stands at $634.5 million.
Verhesen said part of the issue around the pace of government spending is tied to the lengthy procurement process, while funding delays, red tape and slow department approvals are also problematic.
“There have been lots of promises about infrastructure spending … but none of it has hit the ground yet,” he said.
Alberta Infrastructure Minister Brian Mason acknowledges there have been delays in getting projects built under the New Building Canada Fund due to the program’s complexities.
More generally, a wet construction season and the spring wildfires have also affected Alberta capital projects.
Last week, Mason ordered a provincial review of the government’s procurement process to make sure it’s being done as efficiently as possible.
“Difficulties are temporary; there are some teething problems with some of the new programs, I think, and certainly with the old federal program,” he added.
“But, what wasn’t built this year will be built next year.”
Short-term infrastructure money can’t make up for the large drop in private-sector investment now affecting the province.
As Verhesen points out, Alberta simply has too much construction capacity that was built up during the boom times.
A “new normal” is settling on the sector and it remains to be seen where the industry will eventually settle out.
But in a province struggling to regain its economic footing, the construction sector will need all of the work it can get in the coming year — and infrastructure spending is a key piece of the puzzle.
It’s time to get any red tape out of the way, get the dirt moving and, hopefully, we won’t see many more construction firms calling it a day.